3/19/2014

As the Daily Caller reports, the HHS’ Centers for Medicare and Medicaid Services “quietly introduced the new rule Friday, which relieves insurance companies of some of the damage about to be levied on them by Obamacare-related administrative costs.”

“I am writing to express my concern with the proposed rule change released on Friday, March 14th that would allow insurance companies to keep an additional two percent of premiums for purposes other than medical care…your department is now proposing to increase the amount of money that insurance companies will be allowed to retain for profit.

In the proposed rules, you have indicated that this adjustment in the ‘medical loss ratio’, or 80/20 rule, is due to the possibility of increased administrative costs in 2015. However, adjusting the percentage that insurance providers are required to spend on medical care by two percent would have the combined impact of reducing the amount that insurance providers will be required to pay for people’s medical care while increasing the amount that insurance companies are allowed to retain for profit and for executive pay.

This is deeply concerning, as it could result in higher out of pocket costs for consumers solely for the benefit of the insurance industry.

If this rule were to take effect for 2015, what reasonable expectation can consumers have that it would be reversed in 2016 or later years?”

Rep. Black concludes,

“At a time when public approval of the health care law is so low, do you believe that giving insurance companies a greater percentage of American consumers’ money for their profits will negatively impact enrollment? Do you believe it is fair to force Americans through tax penalties to give insurance companies an even greater percentage of their premiums for costs not related to medical care?”

It can’t be! For this to be true, then conservatives would have to have been right in the arguments they have made against the noble Patient Protection and Affordable Care Act, and we know that can’t be the case.

Oh, the insurance companies love Obaminablecare, even though they hate it, too.

They hate it because it imposes new regulations on them, and they still aren’t sure just how badly those regulations will wind up hurting them. But they absolutely love the idea of the government forcing millions of new customers into buying insurance, and the elimination of competition for customers.

In anything else, businesses have to not only compete against other providers, but against the possible decision of the customer to not buy at all, which requires that prices have some relationship to actual value. Since Obumblecare removes the option to not buy at all, competition becomes solely between which company’s product the consumer will choose. Prices can be set higher under this kind of market, and profits can be increased without recourse to having to increase market share.

The insurance companies are still feeling their way around this, and there’s some disappointment that the exchanges haven’t brought them as many new customers as they had hoped, but it’s still early, and they still figure that they’ll do well in the end.

“You’re eliminating a lot of the incentive to cut down on fraud or bad billing. That costs more money per claim than not doing that. ”

Comment by daleyrocks (bf33e9) — 3/19/2014 @ 10:01 am

Sammy – I don’t understand your thinking here. Are you saying insurance companies have a positive incentive to pay out known fraudulent or questionable claims? Why would that be so?

If they are operating under cost plus conditions, yes.

Now they don’t have the incentive to pay false or exaggerated claims in the short run, but they do in the medium term (and raise premiums correspondingly.) *

Same thing with auto and fire insurance, but it’s worst with medical insurance, where there in fact, no real prices.

* This is explained on pages 72-75 of the book “Catastrophic Care: How American Health Care Killed My Father – and How We Can Fix It” by David Goldhill (Alfred A. Knoph, 2013)

This point is so obvious, but also so poorly understood by Island experts, that it must be repeated: health insurers can achieve long-term profit growth only if the amount of money spent on health care increases. Forty-five years of health-care inflation has not hurt health insurers’ profits; rather, it has fuel profit growth….health insurers have, at best, a complex relationship with cost control and, at worst, a fundamental disincentive…

He is talking more in terms of new services, but this applies to to overbilling.

So long as they can collect premiums, there is limited incentive to contain costs. Obamacare almost completely destroys any incentive on the part of insurance companies to contain costs – profits are fixed at a percentage of premiums, and attempts are made to get everybody to buy a policy.

so Sammy, are you saying that the option to not buy health insurance without repercussions still exists?

Pretty much so. Any person with an income of less than $75,000 a year can probably claim hardship, if they want, and the penalty, which is relatively low for 2014, is only collected by withholding it from any federal income tax refund amount due in 2015.

Congress may also have something to say about that.

The real problem will be people owing money for subsidies that, once the totals for 2014 are in, they should not have collected, and being billed tens of thousands of dollars by Medicaid, because 2014 income came in too high, which we start hearing about too..

“Obamacare almost completely destroys any incentive on the part of insurance companies to contain costs – profits are fixed at a percentage of premiums, and attempts are made to get everybody to buy a policy.”

Sammy – I disagree and have no idea how whatever Goldhill is talking about relates to Obamacare. The concept Patterico outlined in this post relates to a “minimum loss ratio” and has nothing to do with cost plus billing which sounds more like a Medicare type concept. Under the minimum loss ratio structure, if an insurer pays out less than 80 or 85 cents of each premium dollar, depending on the type of business written, on actual medical claims – not commissions, overhead, debt service, dividends, etc., etc. – the government takes the money and rebates it to policyholders. If the insurer pays out more than the minimum loss ratio, e.g. eats into their potential allowable expense and profit margin, they have to suck it up and the government doesn’t care. That’s why there’s always an incentive to get rid of fraudulent claims, first to keep the MLR low so you have enough left over to cover costs and second to get rid of scam artists and fraudsters who tend to come back year after year to victimize the industry unless you put them in the slammer.